Will Bitcoin Overtake Gold As A Hedge?

Investment 101

Published: November 9, 2021

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There’s this persistent narrative – when Bitcoin goes up, gold goes down because, apparently, Bitcoin is going to replace gold as a hedge. 

This is one of the most misguided beliefs I have ever heard. Not only are these two assets both necessary in your portfolio, but they are also two very different assets and both are necessary for a more stable investment portfolio. 

Many are using Bitcoin as a hedge. If you want to do that, go ahead but there is one fundamental requirement for one asset to be hedge, stability and that’s the one thing Bitcoin or any other crypto doesn’t have for now. 

Inflation hedge refers to investments that protect investors from the declining purchasing power of money due to inflation. A hedge is expected to maintain or increase in value during inflationary cycles.

Bitcoin’s volatility has no pattern and this is aggravated by even more unpredictable political and social development that affect crypto directly and indirectly. 

China forced out miners. The SEC wants more power over crypto. The government wants to impose taxes on crypto. 

Because it is a global asset, every possible conflict or problem in other countries affects it. 

Even worse is that Bitcoin is yet to prove its utility. The economic utility is the ability of a good to satisfy a need. The ability to trade Bitcoin for another good doesn’t qualify. To have utility Bitcoin must satisfy a need by itself, without having to be traded for another good that does.

That’s what gold does. It is a need in and of itself. Industries need it and not just the jewelry market. It is used by computers, cars, electronics, and other devices. It is used by the medical industry, dental industry, and aerospace. 

In every industry, gold has proven to be irreplaceable.

Gold’s stability comes from its own characteristics. 

This is not to say Bitcoin sucks. I have always advocated diversification. That includes investing in assets that are volatile but have a lot of potentials. It is the future. The future and the future are starting. 

So I always classify Bitcoin and another crypto as my risky investment. I invest what I can lose but also enough to have significant gains when it does pick up. 

Bitcoin rising as gold falls don’t mean it’s replaced gold as an #inflation hedge. Gold is down as traders mistakenly think the Fed will successfully fight off inflation by tapering QE and raising interest rates. Bitcoin doesn’t trade like gold because it’s not digital gold.

So, if you want to talk about how you can actually balance your portfolio with gold, call us. Our associates will be ready to answer your questions. Don’t worry. No pressure. You can just ask your questions. 

Investment 101

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